By: Vivian Haines
Number Three: Business Investment Relief
In the third of his series on the key tax breaks designed to encourage investment and entrepreneurial activity in the UK, Vivian Haines considers Business Investment Relief.
Business Investment Relief (BIR)
For years, the remittance basis of taxation has attracted overseas individuals to re-locate to the UK in the knowledge that their non-UK income and capital gains can be held outside of the UK without UK tax arising until the funds are remitted to the UK.
In 2012, the UK Government woke up to the fact that whilst the UK’s remittance basis of taxation encourages high net worth individuals to re-locate to the UK, it also deters them from investing in the UK.
To counter this, it introduced BIR. The relief has been a success despite the fact the Government missed the opportunity in 2012 to undertake a more comprehensive ‘root and branch’ reform of the remittance basis of taxation to encourage inward investment into the UK. Since its introduction, non-domiciled taxpayers have invested c. £1.5 bn into the UK by taking advantage of BIR.
Basics of the relief
Broadly, if an investor has non-UK income or capital gains that he/she wants to invest into UK trading companies or a holding company of a trading group, the funds can be remitted to the UK without triggering a taxable remittance. The funds must then be taken back outside the UK again on the occasion of certain trigger events to prevent a tax charge arising and to preserve their status as unremitted monies.
The relief is surprisingly wide in scope, compared to some other tax reliefs, given that both debt and equity investments qualify, as well as investments in property trading companies. Whilst the investment is held, the investor may have UK tax exposure as he would where he holds any other UK investment. However, the relief also combines with other tax reliefs:
Enterprise Investment Scheme (EIS) – Income Tax (ICT) relief at 30% on up to £1m per tax year, and Capital Gains Tax (CGT) exemption/deferral relief;
Although all investments should first and foremost be made on the basis of the attractiveness of the commercial opportunity they offer, the tax savings available under BIR – when combined with the other tax reliefs set out above – can combine to produce a significantly superior total return. Care is needed in understanding the structuring to ensure that funds can be taken back out of the UK within the required time frame when a trigger event occurs.
Read Number 1: Investors’ Relief and Number 2: Entrepreneurs’ Relief
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